Only 6% of CEO pay in Europe is tied to environmental performance

Vlerick Business School researchers Marthe Van Hove and Bettina De Ruyck trained and supervised a team of job students who collected remuneration data on the CEOs of the 600 largest listed European firms (i.e., STOXX EU 600) over summer. The findings of this yearly study were presented at the European Executive Reward Conference on November 21.  

(Picture left: Marthe Van Hove - Research Associate at Vlerick Business School)

Xavier Baeten, professor of Reward & Sustainability at Vlerick Business School, kicked off the conference with insights on the evolution of CEO pay in Belgium:  

“The average remuneration of BEL 20 companies is remarkably higher than that of smaller Belgian listed firms. We see that this gap is mainly caused by long-term incentives (e.g., stock options, performance shares), which are more prevalent and substantial for BEL 20 companies. The median total CEO pay (i.e., base pay, bonus and long-term incentives) in 2021 for the Bel 20 is € 2.430.492, for the Bel Mid € 908.115 and for the Bel Small € 587.482. ” 

Putting a lens on the key performance indicators (KPIs) of these incentive plans, the Centre finds that only a small part of CEO pay is tied to a pressing societal concern: climate change. Only 6% of European CEO pay is tied to environmental performance. Moreover, only 1 out of 20 European CEOs have an environmental KPI in their bonus or long-term incentive plan. The study puts two firms in the spotlight that are championing ESG by tying it to a substantial part of CEO pay: Solvay and Umicore.   

In the second part, Bettina De Ruyck, PhD researcher at Vlerick Business School, shared some findings of an academic study in collaboration with University of Georgia:  

 “We studied say-on-pay voting (SOP) and find that shareholders’ attitudes towards Environmental, Social and Governance (ESG) measures in incentive systems are conditional upon firm authenticity, being that it delivers on those intentions. Concretely, this implies that ESG incentives result in increased shareholder support for firms with high sustainability performance. However, having ESG incentives backfires for firm with poor sustainability performance. In that case, shareholders are more likely to vote against the remuneration report. Our study highlights that say-on-pay voting can be an effective corporate governance practice for shareholders to ‘voice’ their opinions and that shareholders are sophisticated in their assessments of CEO pay.”